Saturday, 4 June 2011

update on trend following in a bubble

This is a chart of the a simple trend following strategy sharpe, on the x axis is the time window used for the entry and exit signal in trading days, the green line is the sharpe for commodities and the red line is the sharpe for equities bubbles. These sharpe's do NOT consider transaction costs. Including that would dramatically shift the optimal window to a the right, because you'll trade less often. So the pseudo optimal window for commodities is the 6yr average, and for equities its a lot shorter, at the 252d approximately.

That would have bought you gold at $300 in 2002....a 17.46% compounded annual return. It would also put your robust stop at $866 now, a pretty huge drawdown.

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